Federal Budget 2026: What the Negative Gearing and CGT Changes Mean for Property Investors

The 2026 Federal Budget delivered two of the most significant changes to property investment tax settings in a generation. Negative gearing for established residential properties is being wound back, and the capital gains tax discount is being restructured. If you own, or are planning to buy, an investment property — this affects you. Here's a plain-English breakdown of what's changed, what's grandfathered, and what it means for your strategy.

⚠ Important disclaimer

The changes announced in the 2026 Federal Budget are proposals that still require legislation to take effect. The information below reflects the government's announced policy as at Budget night, 12 May 2026. You should seek advice from a qualified tax adviser or accountant regarding your specific situation before making any investment decisions.

Change 1: Negative Gearing — What's Happening

From 1 July 2027, negative gearing for established residential properties will be limited. If you purchase an established residential property after 7:30pm AEST on 12 May 2026 (Budget night), your rental losses will no longer be deductible against your salary or other personal income.

Instead, losses on those properties can only be offset against:

• Other residential rental income you receive

• Future capital gains from residential rental properties when you sell

Excess losses can be carried forward to future years — they're not lost, just quarantined. But the immediate cash flow benefit of reducing your personal income tax each year is gone for new established property purchases.

Property type	Purchased before 7:30pm 12/5/26	Purchased after 7:30pm 12/5/26
Established residential	✓ Grandfathered — negative gearing continues	✗ Losses quarantined — cannot offset personal income
New build / new supply	✓ Full negative gearing available	✓ Full negative gearing continues after 1 July 2027
SMSF / widely held trusts	✓ Exempt from changes	✓ Exempt from changes
Commercial property / shares	✓ No change — existing rules apply	✓ No change — existing rules apply

Change 2: Capital Gains Tax — What's Changing

From 1 July 2027, the existing 50% CGT discount for individuals, trusts, and partnerships will be replaced with two options investors can choose between at the time of sale:

• Cost base indexation — adjusts the cost base of the property for inflation, reducing the nominal gain

• 30% minimum tax rate — a flat minimum rate applies to the capital gain

Importantly, for new build properties, investors can choose either the existing 50% CGT discount or the new indexation/minimum tax treatment when they sell. This is an additional incentive for investors to buy new rather than established.

What this means in practical terms

The CGT changes are most impactful for investors on high marginal tax rates who have held properties for long periods of strong capital growth. The indexation method may produce a better outcome in high-inflation environments. Which option is better at the time of sale will depend on your individual circumstances, holding period, and the rate of inflation. This is an area where good tax advice will pay for itself many times over.

What These Changes Mean for Property Investors in Practice

The tax treatment of established versus new build investment properties is now fundamentally different.

Who is less affected Investors who already own properties (grandfathered) Investors buying new builds or off-the-plan Investors using SMSF structures Investors with positively geared portfolios (rental income exceeds costs) Investors in commercial property or shares

Who is most affected High-income earners relying on negative gearing to offset salary Investors planning to buy established properties after Budget night Investors with high leverage and low rental yields Investors who planned to use the 50% CGT discount as an exit strategy

The Strategic Shift — New Builds Now Have a Significant Advantage

The combined effect of these changes is clear: the government has deliberately created a two-tier system that makes new build investment properties substantially more tax-advantaged than established ones going forward.

For investors who were weighing up new versus established, the calculus has shifted. New builds retain full negative gearing, retain the 50% CGT discount as an option, and will likely face increased demand from other investors making the same calculation — which may support their capital growth.

"The Budget hasn't ended property investment — it's redirected it. Investors who adapt their strategy will find the new landscape still has significant opportunities."

General information only. Budget measures are proposals pending legislation as at 17 May 2026. Tax implications vary by individual circumstance. Please seek advice from a qualified tax adviser. Credit Representative Number 439731.

Wondering how the Budget changes affect your situation?

Whether you own investment properties already or are planning your first, the right loan structure matters more now than ever. Let's review your position together.